In an industry report released July 8, 2013, Raymond James & Associates asked the question: ‘When will the Keystone XL Pipeline become a necessity?’

According to analysts, Marshall Adkins & Cory Garcia, additional pipeline capacity out of Western Canada will be eventually needed if Canadian oil sands growth continues as projected.

“While Keystone isn’t needed today or arguably even in late 2015 when it is most likely to come online (pending approval), pipeline solutions like Keystone XL, Northern Gateway, or others will be necessary in 2017-18,” Adkins said.

Heavy pipeline additions are set to come online in the next two years, solving the bottle-neck issue from Canada into the Midwest without help from Keystone. These will help Western Canadian Select (WCS) prices and keep the market balanced for the next three years.

According to Adkins and Garcia, WCS pricing dislocation was caused by the infrastructure constraints out of the U.S. Midwest – not Canada. However, the problem still resides that heavy barrels need to be moved further South towards the coast, the analysts said.

Narrowing in the WTI-WCS differential – Canadian heavy producers would have WCS prices of around $60 per barrel, well below current levels of $87 per barrel. According to the report, heavy exposure of WCS would have a negative impact on refining margins for Midwest refiners but for heavy-focused Gulf Coast refiners, larger access to WCS crude would improve crude sourcing flexibility.

A Need for Additional Solutions

Adkins and Garcia anticipate oil sands production will grow from 1.8 MMBOPD in 2012 to 3.2 MMBOPD in 2020. This growth will need to be faced with a large solution for moving crude out of Western Canada by the end of the decade. The two largest options include Keystone XL and/or Northern Gateway.

The Northern Gateway pipeline would transport 525 MBOPD from Edmonton to Kitimat, British Columbia, for export but would be expected to be online by 2017 or 2018. Keystone XL would have 830 MBOPD of capacity and is set to be online by 2015.

However according to Raymond James, if neither were to move forward, Canadian production will overwhelm takeaway capacity by 2018 thus having a significant impact on differentials.

BP Energy Outlook 2030

In its January 2013 report, BP said the Americas will account for 65% of incremental supply growth to 2030 as tight oil (5.7 MMBOPD), oil sands (2.7 MMBOPD), and biofuels (1.8 MMBOPD) drive growth. The U.S. (4.5 MMBOPD) leads regional increases and will surpass its previous record output reached in 1970.

Source: BP Energy Outlook 2030

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